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Thursday, August 13, 2015

Countries spend considerable time and energy stealing each other's infrastructure. For a take on this, read John Perkins book Confessions of an Economic Hit Man and his two subsequent books on the subject. Also get Oliver stone's book, The Untold History of the United States or click on the link Timeline America.

Here is a new scenario (to me at least); a new wrinkle on this ongoing quest for dominance and economic advantage. I don't know if this is been actively engineered or if countries are simply taking advantage of the situation opportunistically. Either way, the result is the same. One country owns more and more of the infrastructure of another country.

And it may not be the actual country that is doing it but rather her large businesses. In fact, with the independence of large multi-national companies, the companies themselves will be either engineering take overs or taking advantage of opportunities when they arise independent of their country of origin. This applies particularly to commodity enterprises such as coal mines and lumber mills. I will use milk as an example since with respect to our milk markets, New Zealand is at present deep in what comes out of the other orifice of the cow.

So how does it work.

A country with deep pockets gives top dollar for a commodity such as raw logs, coal or milk powder. It must be a large country with a large market for the commodity for this to work. It also must be a commodity that has a long shelf life. You may think that this eliminates milk but much of the milk that is traded around the world is traded as powdered milk. As long as you keep your powder dry, it lasts for ever. The country with the deep pockets stockpiles far more of this product than she needs and then stops purchasing. Because she is such a large part of the market for the product, the price plummets.

Being human, the farmers (in the case of milk) have spent up big when the milk solid price ishigh and even overspent in anticipation of a long run if high milk prices. Many have increased their debt. Now the price tanks. Foreclosures are inevitable.

Here is where we see the metal and the vision of the government of the small country that is under this economic attack. She can make it open slather on farms and allow the country that caused the crisis to buy up the foreclosed farms. The foreclosed farmers will be happy (as much as they can be under the circumstances) since they get out from under their debt. The big country can pay at least enough to pay off the debt and voila; the farms are alienated from the economy of the small country.

On the other hand they can legislate that no farms will be sold to non residents. Lets burrow down into this decision level by level and see what the results will be if only residents can buy these farms.

Level 1
Pretty harsh on the foreclosed farmers. Without someone with deep
pockets coming along to buy their farm, They might still owe money to
the bank even after it has been sold. With a deep pocket buyer, they
might even have a little surplus in pocket after the sale of their farm.

Level 2
The
banks may think twice and then once again about foreclosing on a farm
if the prospect of a rich buyer is not in the offing. Less farms will
be foreclosed. As the milk price recovers, some of these farmers will
get their heads above water and become successful.

Level 3
Residents who do buy foreclosed farms will get them for a reasonable
price when there is no competition from overseas. With the resulting smaller
mortgage, their break even milk solid price will be lower. Our dairy
industry will be just that little bit more financially resilient when the next attack on the industry occurs.

Level 4
Most of
our mortgages (in New Zealand) are held by Australian banks. With lower mortgages, less
money will be hemorrhaging to Australia and NZ's balance of payments will
be that little bit better.

Level 5
With no farm sales to non residents we will have a measurement of how
much overseas sales push up farm prices and hence a hint of
how much they push up housing prices. Perhaps if the drop is
significant, the government of the day will consider legislating for no
house sales as well to non residents with similar beneficial effects for Kiwis.

As I said, I don't know if this sort of thing is being actively engineered by large countries with deep pockets or if they are simply taking advantage of periodic falls in commodity prices. Whichever the case, without a government with some long term vision, a small country is slowly but steadily bought out. Not a bullet fired and you become tenants in your own country.